The FTC receives more complaints from consumers about debt collectors and debt buyers than any other industry. So the FTC studied this industry over the past three years, trying to understand the process of buying and selling debt as well as the problems that occur when collectors try to recover the debt. The FTC released their findings yesterday in a comprehensive report.
Creditors sell debt to buyers who can either attempt to collect the debt or sell it to other buyers. Selling debt reduces the losses of providing credit, and lenders say this allows them to provide credit at lower rates.
However, selling debt raises consumer protection concerns. Many complaints center around the quantity and quality of information that collectors have about debts.
The report found that debt buyers may not receive any supporting documents from the debt seller such as account statements or the terms and conditions of the credit. There is no guarantee that the debt information at the time of sale will be accurate. Sellers even have a disclaimer that they are selling debts "as is."
Hence, debt buyers may have inaccurate or insufficient information when they try to collect on debts. This can lead to collectors attempting to collect the wrong amount, or trying to recover from the wrong person.
According to the report, debt buyers are also not being told whether the debt is being challenged by the consumer.
Debt buyers paid an average of four cents per dollar of debt face value. They paid even less for older debt.
The Commission collected and studied data on more than 5,000 portfolios obtained from nine of the largest debt buyers. Collectively, these buyers do over three-quarters of all the debt buying in the industry. These contained nearly 90 million consumer accounts that were purchased during the three-year study period. The accounts had a $143 billion face value, but debt buyers spent only $6.5 billion to buy them. Credit card debt was 62 percent of the portfolios.